Women’s remains a key component in Express Inc.’s turnaround strategy as the company continues to move deeply into cost-cutting mode.
In a Nutshell: Express CEO Tim Baxter said the momentum in the women’s business continued through the recent holiday weekend.
“Improvement was most powerful in our women’s business where our new deliveries reflect the more appropriate balance across categories, price points, and wearing occasions,” Baxter told investors during a conference call on Wednesday. “We are now chasing into best selling products and categories which has always been a winning formula for Express.”
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Women’s denim, knits and sweaters are driving positive comps. Denim sales “skyrocketed” after Express brought back skinny jeans, Baxter said.
“We know that over 80 percent of our customers actually wear denim to work, but today only 25 percent of our customers are buying denim from us. So we know there’s an extraordinary opportunity there in denim,” Baxter said.
Men’s wear is lagging women’s right now, according to Baxter, who pointed to strength in suits, tops, jeans and casual bottoms.
Express is also taking steps to cut costs.
“We are committed to over $200 million dollars in savings by 2025, which includes $50 million in gross margin expansion opportunities by leveraging efficiencies in sourcing production and the supply chain,” Baxter said, adding that management is trying to find synergies in technology and real estate.
Express plans to save $80 million in costs for fiscal 2023. Cutting jobs will save $30 million. The company has found $120 million in annualized expense reductions for fiscal 2024. And leveraging efficiencies in sourcing, production and the supply chain should give Express at least $50 million in gross margin expansion opportunities. It has already identified and implemented $65 million of annualized cost reductions for fiscal 2023.
Express entered into a new $65 million asset-based term loan agreement with ReStore Capital on Sept. 5.
Dana Telsey, chief investment officer at Telsey Advisory Group, has a “high risk” rating on shares of Express Inc. She cited in a research note reasons that include how “visibility remains difficult, a key driver of profitability growth is the women’s assortment which remains a work in progress (though improving), and margins look to remain pressured given guaranteed minimum royalty payments to WHP Global for the Express brand licensing, along with a competitive pricing environment.”
For years Express often appeared on credit watch lists monitoring retailers at risk of going bankrupt. The $400 million licensing deal with WHP Global it inked in December gives the mall chain a bit of breathing room.
The joint venture will acquire, operate and grow a portfolio of brands. EXPR, the company that runs Express, and WHP completed their joint acquisition of Bonobos from Walmart Inc. on May 23. The $75 million transaction gave WHP the intellectual property assets for $50 million and Express the operating assets and the assumption of certain liabilities for $25 million.
Baxter said on the call that the Express intellectual property was valued at $400 million at the time of the transaction, and that “we maintain a 40 percent stake valued at $157 million.”
Net Sales: For the three months ended July 29, net sales fell 6.4 percent to $435.3 million from $464.9 million. Comparable retail sales at Express stores and e-commerce were down 13 percent from year-ago levels, while comparable outlet sales fell 17 percent.
By brand, net sales for the Express and UpWest brands fell 15 percent to $394.4 million, while net sales for the Bonobos brand was $40.9 million in the quarter.
For the six months, net sales declined 10.6 percent to $818.6 million from $915.7 million.
Earnings: The company posted a net loss of $44.1 million, or $11.79 a diluted share, against net income of $7.0 million, or $2.05, in the year-ago quarter. On an adjusted basis excluding certain restructuring charges and acquisition-related and integration costs and a non-cash impairment charge, the adjusted diluted loss per share was $9.05. The loss per share figures have been adjusted to reflect the 1-for-20 reverse stock split that occurred on Aug. 30.
The company said it expects a diluted loss per share of $5.50 to $7.50 for the third quarter, on net sales estimated at between $460 million to $490 million, which includes $50 million in Bonobos net sales.
The company’s full year 2023 outlook remained unchanged, with a diluted loss per share of between $30 to $34, on net sales of $1.9 billion to $2.0 billion, including $150 million in Bonobos net sales.
For the six months, the net loss widened to $117.5 million, or $31.62, from a net loss of $4.9 million, or $1.44, in the comparable year-ago period.
CEO’s Take: “While our results were within the ranges of our outlook, they were not where they need to be in the Express brand. and we continue to be intensely focused on taking corrective action to address the most significant challenges we have faced,” Baxter said.
